Devon Energy Corp.'s C$3.8 billion agreement to sell its holdings in Canada to Canadian Natural Resources Ltd. is a "win-win" for both companies, Canadian Natural executives said May 29.
Devon announced early May 29 that it reached an agreement to sell its assets in Canada, which largely consist of heavy oil holdings in Alberta, to Canadian Natural. The deal, which is scheduled to close during the second quarter, adds proved reserves of approximately 409 million barrels to Canadian Natural's portfolio.
"The transaction announced this morning is a win-win deal for both Devon and Canadian Natural, allowing Devon the ability to achieve its objective of exiting Canada and Canadian Natural the opportunity to leverage our economies of scale, our technical and operating expertise and capture significant synergies to add incremental value from these very high-quality assets," Canadian Natural Executive Vice Chairman Steve Laut said.
Company officials spent much of the call making points aimed at reassuring investors who might be displeased with a balance sheet-disrupting acquisition. For his part, Laut said the purchase of Devon's Canadian assets would add value for shareholders in the short- and long-term.
"Canadian Natural's acquisition of substantially all the Devon Canada assets clearly makes sense and adds significant value for Canadian Natural shareholders. The assets not only add value but our balance sheet strengthens by year-end … while our ability to generate free cash flows increases and our share buyback program remains substantial," he said. "It's a textbook definition of an excellent fit."
Canadian Natural President Timothy McKay said the Devon assets are in close proximity to the company's existing assets in Alberta and no additional pipeline capacity will be needed to carry the approximately 113,000 boe/d of added production to market. Canadian Natural's history in the area, he said, should allow the company to improve production in a fairly short period of time.
"By combining teams, sharing learnings and experience … we can improve our cycle times and commercialization," he said.
McKay said adjusted flows per share are expected to increase from approximately 48 Canadian cents per share to 85 cents per share as a result of the acquisition of Devon's assets. The company also expects earnings per share to increase from around 25 cents per share to 53 cents per share on an annual basis. Canadian Natural is anticipating a 10% increase in production growth and believes it can save approximately C$135 million per year in synergies.
"The combined infrastructure that has the ability to grow volumes should be cost effective as compared to greenfield development," McKay said. "These are high-quality assets and are an excellent fit with Canadian Natural's. We will be able to capture significant savings over time as well as with our existing operations."